34 Tex. Admin. Code § 3.335

Current through Reg. 49, No. 50; December 13, 2024

Section 3.335 - Property Used in a Qualifying Data Center or Qualifying Large Data Center Project; Temporary Sales Tax Exemption

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Capital investment--The amount paid to acquire capital or fixed assets that are purchased for use in the operation of a qualifying data center or qualifying large data center projects, and that, for U.S. federal income tax purposes, qualify as Section 179, Section 1245, or Section 1250 property, as those terms are defined in Internal Revenue Code, §§179(d)(1), 1245(a)(3), and 1250(c), respectively. Examples include, but are not limited to, land, buildings, furniture, machinery, and equipment used for the processing, storage, and distribution of data, and labor used specifically to construct or refurbish such property. The term does not include:

(A) property purchased before September 1, 2013, for a qualifying data center;

(B) property purchased before May 1, 2015, for a qualifying large data center project;

(C) property purchased by a qualifying owner, qualifying operator, or qualifying occupant from persons or legal entities related to the purchaser by ownership or common control;

(D) property that is leased under an operating lease; or

(E) expenditures for routine and planned maintenance required to maintain regular business operations.

(2) County average weekly wage--The average weekly wage in a county for all jobs during the most recent four quarterly periods for which data is available, as computed by the Texas Workforce Commission, at the time a qualifying owner, qualifying operator, or qualifying occupant creates a job used to qualify under this section.

(3) Data center--A facility that:

(A) is or will be located in this state;

(B) is or will be specifically constructed or refurbished for use primarily to house servers, related equipment, and support staff for the processing, storage, and distribution of data;

(C) will be used by a single qualifying occupant for the processing, storage, and distribution of data;

(D) will not be used primarily by a telecommunications provider to house tangible personal property that is used to deliver telecommunications services; and

(E) has or will have an uninterruptible power source, generator backup power, a sophisticated fire suppression and prevention system, and enhanced physical security that includes restricted access, video surveillance, and electronic systems.

(4) Permanent job--An employment position for which an Internal Revenue Service Form W-2 must be issued, that will exist for at least five years after the date the job is created. A permanent job will be considered to exist for at least five years after the date the job is created if during the five-year period any vacancy which occurs is filled within 120 days of the date of vacancy.

(5) Primarily--More than 50% of the time.

(6) Qualifying data center--A data center that the comptroller certifies as meeting each of the requirements in subsection (d) of this section.

(7) Qualifying job--

(A) A new, full-time job created by a qualifying owner, qualifying operator, or qualifying occupant of a qualifying data center or qualifying large data center project that:

(i) is a permanent job;

(ii) is located in the same county in Texas in which the associated qualifying data center or qualifying large data center project is located;

(iii) will provide at least 1,820 hours of employment a year to a single employee;

(iv) pays at least 120% of the county average weekly wage, as defined by paragraph (2) of this subsection, for the county in which the job is located;

(v) is not transferred from one county in Texas to another county in Texas; and

(vi) is not created to replace a qualifying job that was previously held by another employee.

(B) The term includes a new employment position staffed by a third party employer if the employment position meets the requirements of subparagraph (A) of this paragraph and if a written contract exists between the third-party employer and a qualifying owner, qualifying operator, or qualifying occupant that provides that the employment position is permanently assigned to an associated qualifying data center or qualifying large data center project.

(8) Qualifying large data center project--A data center that the comptroller certifies as meeting each of the requirements in subsection (e) of this section.

(9) Qualifying operator--A person who controls access to a qualifying data center or qualifying large data center project, regardless of whether that person owns each item of tangible personal property located at the qualifying data center or qualifying large data center project. A qualifying operator may also be the qualifying owner.

(10) Qualifying owner--A person who owns the building in which a qualifying data center or qualifying large data center project is located. A qualifying owner may also be the qualifying operator.

(11) Qualifying occupant--A person who:

(A) contracts with either a qualifying owner or qualifying operator to place, or cause to be placed, tangible personal property at the qualifying data center or qualifying large data center project for use by the occupant. The qualifying occupant may also be the qualifying owner or the qualifying operator of the same data center; and

(B) is the sole occupant of the qualifying data center or qualifying large data center project. A qualifying occupant may provide data storage and processing services, but may not sublease to a third party any real or tangible personal property located within the area of a building designated by the qualifying occupant, qualifying owner, or qualifying operator as part of the qualifying data center or qualifying large data center project. For example, a qualifying occupant may not sell or lease excess servers or server space, including the provision of dedicated servers, at the qualifying data center to third parties. If a single occupant leases 150,000 square feet of space in a building for use as a qualifying data center, that occupant may not use 100,000 square feet for its own qualifying use and sublease the remaining 50,000 square feet to a third party, even if the third party will also use the space as a data center. An occupant may, however, lease 150,000 square feet of space in a building and, during the certification process, formally designate 100,000 square feet or more of the space as the area to be used as its qualifying data center. The occupant could then sublease the space not designated for use as the qualifying data center to a third party without causing the qualifying data center to lose its certification as a qualifying data center. Tangible personal property purchased for use in the space outside the area designated for use as a qualifying data center would not qualify for exemption under this section.

(b) Exemption.

(1) The exemption under this subsection for qualifying data centers only applies to Texas state sales and use taxes. See Tax Code, § 151.359 (Property Used in Certain Data Centers; Temporary Exemption). The exemption under this subsection for qualifying large data center projects applies to Texas state and local sales and use taxes. See Tax Code, § 151.3595 (Property Used in Certain Large Data Center Projects; Temporary Exemption).

(2) Tangible personal property purchased by a qualifying owner, qualifying operator, or qualifying occupant for installation at, incorporation into, or in the case of subparagraph (A) of this paragraph, use in a qualifying data center or qualifying large data center project is exempted from the applicable taxes as specified in paragraph (1) of this subsection if the tangible personal property is necessary and essential to the operation of the qualifying data center or qualifying large data center project and is:

(A) electricity. A predominant use study is required to differentiate between taxable and nontaxable use of electricity from a single meter unless the qualifying data center or qualifying large data center project is a stand-alone facility of which the qualifying occupant is the sole inhabitant. For more information regarding predominant use studies, refer to § 3.295 of this title (relating to Natural Gas and Electricity). The qualifying owner, qualifying operator, or qualifying occupant of a stand-alone qualifying data center or qualifying large data center project is not required to perform a predominant use study and may, in lieu of tax, supply its utility provider with a properly completed Exemption Certificate for Qualifying Data Centers or Qualifying Large Data Center Projects, Form 01-929. Refer to subsection (h) of this section regarding exemption certificates;

(B) an electrical system;

(C) a cooling system;

(D) an emergency generator;

(E) hardware or a distributed mainframe computer or server;

(F) a data storage device;

(G) network connectivity equipment;

(H) a rack, cabinet, and raised floor system;

(I) a peripheral component or system;

(J) software;

(K) a mechanical, electrical, or plumbing system that is necessary to operate any tangible personal property described in this subsection;

(L) any other item of equipment or system necessary to operate any tangible personal property described in this subsection, including a fixture; or

(M) a component part of any tangible personal property described in this subsection.

(3) The purchase price of qualifying tangible personal property, including building materials, electricity, and other items, jointly procured by a qualifying owner, qualifying operator, or qualifying occupant for installation at, incorporation into, or use in one or more qualifying data centers or qualifying large data center projects is to be apportioned among the purchasers for purposes of subsection (i)(2) of this section, concerning liability in the event of revocation.

(c) Exclusion from exemption. The exemption in subsection (b) of this section does not apply to:

(1) office equipment or supplies;

(2) maintenance or janitorial supplies or equipment;

(3) equipment or supplies used primarily in sales activities or transportation activities;

(4) tangible personal property on which the purchaser has received or has a pending application for a refund under Tax Code, § 151.429 (Tax Refunds for Enterprise Projects);

(5) tangible personal property that is rented or leased for a term of one year or less;

(6) tangible personal property not otherwise exempted under subsection (b) of this section that is incorporated into real estate or into an improvement of real estate; or

(7) notwithstanding Tax Code, § 151.3111 (Services on Certain Exempted Personal Property), a taxable service that is performed on tangible personal property exempted under this section.

(d) Eligibility for certification as a qualifying data center. The comptroller may certify an applicant facility as a qualifying data center if the following requirements are met:

(1) the applicants declare on the application for certification that the facility does or will meet all of the requirements for the definition of the term "data center" set out in subsection (a)(3) of this section;

(2) the data center is at least 100,000 square feet of space located in a single building or portion of a single building;

(3) the qualifying owner, qualifying operator, or qualifying occupant, jointly or independently, have agreed to, on or after September 1, 2013:

(A) create at least 20 qualifying jobs on or before the fifth anniversary of the date that the data center is certified by the comptroller as a qualifying data center; and

(B) make a capital investment of at least $200 million in that particular data center over a five-year period beginning on the date the data center is certified by the comptroller as a qualifying data center. For purposes of this subparagraph:

(i) an expenditure can only be counted toward the capital investment requirement if invoiced to the qualifying owner, qualifying operator, or qualifying occupant on or after the date the comptroller certifies the data center; and

(ii) purchases by a related corporate entity on behalf of a qualifying owner, qualifying operator, or qualifying occupant cannot be included in the capital investment calculation; and

(4) the applicant facility does not have an agreement under which it receives a limitation on appraised value of property for ad valorem tax purposes under Tax Code, Chapter 313 (Texas Economic Development Act).

(e) Eligibility for certification as a qualifying large data center project. The comptroller may certify an applicant facility as a qualifying large data center project if the following requirements are met:

(2) the data center is composed of one or more buildings totaling at least 250,000 square feet of space located or to be located on a single parcel of land or on contiguous parcels of land that are commonly owned or owned by affiliation with the qualifying operator;

(3) the qualifying owner, qualifying operator, or qualifying occupant, jointly or independently, have agreed to:

(A) on or after June 1, 2015, create at least 40 qualifying jobs on or before the fifth anniversary of the date that the data center submits the application to the comptroller;

(B) on or after May 1, 2015, make a capital investment of at least $500 million in that particular data center over a five-year period beginning on the date the data center submits the application to the comptroller. For purposes of this subparagraph:

(ii) purchases by a related corporate entity on behalf of a qualifying owner, qualifying operator, or qualifying occupant cannot be included in the capital investment calculation; and

(C) on or after June 1, 2015, contract for at least 20 megawatts of transmission capacity for operation of the qualifying large data center project; and

(f) Application process.

(1) A facility that is eligible to be certified under subsection (d) of this section as a qualifying data center or under subsection (e) of this section as a qualifying large data center project by the comptroller shall apply for a registration number on the Texas Application for Certification as a Qualifying Data Center, Form AP-233 or Texas Application for Certification as a Qualifying Large Data Center Project, Form AP-236, as applicable. The application must include:

(A) the name, contact information, and authorized signature for the qualifying occupant and, if applicable, the name, contact information, and authorized signature for the qualifying owner and the qualifying operator who will claim the exemption authorized under this section;

(B) a business proposal summarizing the plan of the qualifying owner, qualifying operator, or qualifying occupant, independently or jointly, to meet the requirements in subsection (d) of this section for qualifying data centers or subsection (e) of this section for qualifying large data center projects; and

(C) a statement confirming that the qualifying owner, qualifying operator, and qualifying occupant, as applicable, agree that the statute of limitation provided in Tax Code, § 111.201 (Assessment Limitation) on the assessment of tax, penalty, and interest on purchases made tax-free under this section is tolled from the date of certification until the fifth anniversary of that date, or until such time as the comptroller is able to verify that the requirements set out in subsection (d) of this section for qualifying data centers or subsection (e) of this section for qualifying large data center projects have been met, whichever is later.

(2) Information provided on and with the application under this subsection is confidential under Tax Code, § 151.027 (Confidentiality of Tax Information).

(3) After certifying the qualifying data center or qualifying large data center project, the comptroller will issue a separate registration number to the qualifying owner, the qualifying operator, and the qualifying occupant, as applicable, based on the registration number of the qualifying data center or qualifying large data center project.

(g) Temporary exemption dates. The exemption under this section is temporary. The exemption applies to qualifying purchases made by a qualifying owner, qualifying operator, or qualifying occupant during the exemption period applicable to the qualifying data center or qualifying large data center project.

(1) The exemption period for a qualifying data center or qualifying large data center project begins on the date the data center is certified by the comptroller.

(2) A qualifying data center's exemption period ends 10 or 15 years from the certification date, depending on the amount of capital investment made.

(A) A qualifying data center's sales tax exemption expires 10 years from the date of certification by the comptroller if the qualifying owner, qualifying operator, or qualifying occupant, independently or jointly, makes a capital investment of at least $200 million, but less than $250 million, within the first five years after certification.

(B) A qualifying data center's sales tax exemption expires 15 years from the date of certification by the comptroller if the qualifying owner, qualifying operator, or qualifying occupant, independently or jointly, makes a capital investment of at least $250 million within the first five years after certification.

(3) A qualifying large data center project's exemption period ends 20 years from the date of certification by the comptroller provided the qualifying owner, qualifying operator, or qualifying occupant, independently or jointly, makes a capital investment of at least $500 million within the first five years after certification.

(4) The comptroller will audit each qualifying data center and qualifying large data center project at its five year anniversary to verify the amount of capital investment made and to verify that the jobs creation requirement has been met. The comptroller will also verify the contract for transmission capacity for operation of a qualifying large data center project.

(5) Once all jobs are created, as required under subsection (d) of this section for qualifying data centers or subsection (e) of this section for qualifying large data center projects, the qualifying owner, qualifying operator, or qualifying occupant, either singly or jointly, must timely notify the comptroller by providing a properly completed Qualifying Data Center or Qualifying Large Data Center Project Job Creation Report, 01-160.

(h) Exemption certificate. Each person who is eligible to claim an exemption authorized by this section must hold a registration number issued by the comptroller.

(1) To claim an exemption under this section for the purchase of tangible personal property, a qualifying owner, qualifying operator, or qualifying occupant must provide to the seller of a taxable item an Exemption Certificate for Qualifying Data Centers or Qualifying Large Data Center Projects, Form 01-929. The exemption certificate does not apply to local sales and use tax for qualifying data centers. Refer to subsection (l) of this section for more information regarding local sales and use tax.

(2) To claim the exemption, a qualifying owner, qualifying operator, or qualifying occupant must properly complete all required information on the exemption certificate, including:

(A) the data center registration number;

(B) the registration number of the qualifying owner, qualifying operator, or qualifying occupant, as applicable;

(C) the address of the qualifying owner, qualifying operator, or qualifying occupant, as applicable;

(D) a description of the tangible personal property to be purchased;

(E) the signature of the purchaser; and

(F) the date of the purchase.

(3) The properly completed Exemption Certificate for Qualifying Data Centers or Qualifying Large Data Center Projects is the seller's documentation that it made a tax-exempt sale in good faith. The seller is required to keep the exemption certificate and all other financial records relating to the exempt sale, including records to document the seller's collection of the local sales and use tax for qualifying data centers. The seller must be able to match invoices of tax-exempt sales to the purchaser's exemption certificate. This may be accomplished by the seller entering the purchaser's registration number on each invoice.

(4) A seller is not required to accept an exemption certificate from a qualifying data center or qualifying large data center project. If a seller chooses not to accept an exemption certificate issued by a purchaser, the purchaser may instead request a refund of the tax paid from the comptroller. Sellers shall provide an Assignment of Right to Refund, Form 00-985, when the exemption is not provided to a qualifying owner, qualifying operator, or qualifying occupant when qualifying purchases of tangible personal property are made.

(i) Revocation. By filing an application for certification of a qualifying data center or qualifying large data center project, the qualifying owner, qualifying operator, and qualifying occupant, as applicable, commit to meeting the requirements set out in subsection (d) of this section for qualifying data centers or subsection (e) of this section for qualifying large data center projects and certify the data center will be occupied by a single qualifying occupant over the life of the exemption. For more information, refer to subsection (d) of this section for qualifying data center requirements, subsection (e) of this section for qualifying large data center project requirements, and subsection (g) of this section for the term of the exemption.

(1) Failure to meet one or more of the certification requirements described in subsection (d) of this section for qualifying data centers or subsection (e) of this section for qualifying large data center projects will result in termination of the certification and the revocation of all related qualifying owner, qualifying operator, and qualifying occupant exemption registration numbers.

(2) Each entity that has a registration number revoked will be liable for unpaid sales or use taxes, including penalty and interest from the date of purchase, on all items purchased tax-free under this section, back to the original date of certification of the data center as a qualifying data center or qualifying large data center project.

(3) If a formal waiver of the statute of limitations under Tax Code, § 111.203 (Agreements to Extend Period of Limitation) is deemed necessary to insure against a loss of revenue to the state in the event that a data center's certification is revoked, by allowing the comptroller to verify, prior to the expiration of the statute of limitations on assessment, that each of the requirements in subsection (d) of this section for qualifying data centers or subsection (e) of this section for qualifying large data center projects has been met, then the failure to execute a timely statutory waiver will also result in the termination of the data center's certification and the revocation of all related registration numbers.

(j) Documentation and record retention.

(1) In accordance with Tax Code, § 111.0041 (Records; Burden to Produce and Substantiate Claims) and §151.025 (Records Required to be Kept), all qualifying occupants, qualifying owners, and qualifying operators of a qualifying data center or qualifying large data center project must keep complete records to document any and all tax-exempt purchases made under this exemption, and to confirm payment of the local sales and use tax on such purchases by qualifying data centers. See § 3.281 of this title (relating to Records Required; Information Required) for additional guidance.

(2) In addition, each qualifying owner, qualifying operator, and qualifying occupant of a qualifying data center or qualifying large data center project must keep complete records to document the applicable capital investment made in the qualifying data center or qualifying large data center project; the creation of the required number of applicable qualifying jobs including the retention of those jobs for a period of at least five years; and documentation of the contract for the applicable transmission capacity for qualifying large data center projects. These records must be retained until the data center's certification expires. For example, a qualifying owner, qualifying operator, or qualifying occupant should keep comprehensive records of capital investment expenditures, such as contracts, invoices, and sales receipts, and employment records regarding job creation, including associated third-party employer positions.

(3) In the event the comptroller revokes the certification of a qualifying data center or qualifying large data center project, the records of all qualifying owners, qualifying operators, and qualifying occupants must be retained until all assessments have been resolved.

(k) Successor Liability. A purchaser of a qualifying owner, qualifying operator, or qualifying occupant's business or stock of goods in a qualifying data center or qualifying large data center project is subject to Tax Code, § 111.020 (Tax Collection on Termination of Business).

(l) Local tax. The state sales and use tax exemption for qualifying owners, qualifying operators, or qualifying occupant of a qualifying data center does not apply to local sales and use tax. Local sales and use tax must be paid on the purchase of any tangible personal property that qualifies for exemption from state sales and use tax under this section. This subsection is not applicable to qualifying large data center projects.

(m) An entity that qualifies for the exemption under this section as a qualifying data center or qualifying large data center project is not eligible to receive a limitation on appraised value of property for ad valorem tax purposes under Tax Code, Chapter 313 (Texas Economic Development Act).

34 Tex. Admin. Code § 3.335

The provisions of this §3.335 adopted to be effective February 26, 2014, 39 TexReg 1157; Amended by Texas Register, Volume 39, Number 45, November 7, 2014, TexReg 8742, eff. 11/10/2014; Amended by Texas Register, Volume 42, Number 10, March 10, 2017, TexReg 1129, eff. 3/19/2017; Amended by Texas Register, Volume 43, Number 05, February 2, 2018, TexReg 581, eff. 2/11/2018